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Profitability ratios help in the analysis of the combined impact of liquidity ratios, asset management ratios, and debt management ratios on the operating performance of a firm. Your boss has asked you to calculate the profitability ratios of Dernham Inc. and make comments on its second-year performance as compared with it first-year performance. The following shows Dernham Inc.'s income statement for the last two years. The company had assets of $10.575 million in the first year and $16,916 million in the second year. Common equity was equal to $5,625 million in the first year, and the company distributed 100% of its earnings out as dividends during the first and the second years. In addition, the firm did not issue new stock during either year. Dernham Inc. Income Statement For the Year Ending on December 31 (Millions of dollars) Year 2 Year 1 Net Sales 5,715 4,500 Operating costs except depreciation and amortization 1.120 1,040 ho Depreciation and amortization 286 180 Total Operating costs 1,406 1.220 Operating Income (or EBIT) 4,309 3,280 Less Interest 582 426 Earnings before taxes (EBT) 3.727 2,854 Less: Tasces (2596) 932 714 Net Income 2,795 2,140 Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Calculate the profitability ratios of Dernham Inc. in the following table. Convert all calculations to a percentage rounded to two decimal places. Ratio Value Year 2 Year 1 72.89% 48.9196 Operating margin Profit margin Return on total assets Return on common equity Basic eaming power 20.24% 38.04% 25.47%

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